final pt 2
5. A P/E ratio depends on 1. the firm's dividends 2. the price of the stock 3. the firm's per share earnings a. 1 and 2 b. 1 and 3 c. 2 and 3 d. all of the above
C
1. According to the dividend growth model, the valuation of common stock depends on 1. the firm's dividends 2. investors' required rate of return 3. the prior year's dividends a. 1 and 2 b. 1 and 3 c. 2 and 3 d. all of the above
A
Higher required returns a. decrease stock prices b. are required by the efficient market hypothesis c. increase dividends d. are associated with higher dividends
A
The price to sales ratio may be a preferred analytical tool if a. the firm is not generating cash b. the firm is not generating earnings c. the P/E ratio is too high d. the dividend-growth model suggests the stock is undervalued
B
If the ratio of price to book exceeds 1.0, a. the stock is overvalued b. the firm's assets are understated c. the price of the stock is greater than the accounting value of the firm d. the accounting value of the firm is greater than the market value of the firm
C
If the required rate of return is 10 percent and the stock pays a fixed $5 dividend, its value is a. $100 b. $75 c. $50 d. $25
C
Investors may use P/E and price/sales ratios to value stocks. If this analysis is used, which of the following is desirable? a. a high P/E and a low price/sales ratio b. a high P/E and a high price/sales ratio c. a low P/E and a low price/sales ratio d. a low P/E and a high price/sales ratio
C
The risk adjusted required rate of return includes 1. the firm's earnings 2. the firm's beta coefficient 3. the treasury bill rate (i.e., the risk free rate) a. 1 and 2 b. 1 and 3 c. 2 and 3 d. all of the above
C
The use of P/E ratios to select stocks suggests that a. high P/E stocks should be purchased b. low P/E ratio stocks are overvalued c. a stock should be purchased if it is selling near its historic low P/E d. a stock should be purchased if it is selling near its historic high P/E
C
A low price to sales ratio suggests a. the firm is generating cash b. the firm has no earnings c. the stock valuation is too high d. the stock may be undervalued
D
A stock's price will tend to fall if 1. the firm's beta declines 2. the firm's beta increases 3. the risk free rate declines 4. the risk free rate increases a. 1 and 3 b. 1 and 4 c. 2 and 3 d. 2 and 4
D
If the financial markets were not efficient, a. all investors would profit b. prices indicate the proper valuation of securities c. prices would adjust rapidly d. an investor may consistently outperform the market
D
The use of price to book ratios to select stocks suggests that a. high price to book stocks are undervalued b. low price to book stocks are overvalued c. a stock should be purchased if it is selling near its historic high price to book ratio d. a stock should be purchased if it is selling near its historic low price to book ratio
D
A higher beta decreases the required rate of return.
F
According to the efficient market hypothesis, purchasing companies with high cash flow should produce superior investment results.
F
According to the efficient market hypothesis, purchasing low P/S stocks should produce superior investment results.
F
High P/E stocks should be preferred because they pay larger dividends.
F
The PEG ratio multiplies a stock's earnings, price, and growth rate.
F
The dividend growth model includes both the current and past years' dividends.
F
The dividend growth model requires that dividends grow annually at the same rate.
F
According to the efficient market hypothesis, purchasing high P/E stock should not produce superior investment results.
T
An increase in the risk free rate will tend to decrease stock prices.
T
If the anticipated return exceeds the required rate of return, the investor should buy the stock.
T
The dividend-growth valuation model employs current dividends, future dividend growth, and the required return.
T
The efficient market hypothesis suggests that the current prices of stocks reflect what the investment community believes the stocks are worth.
T
The expected return depends on future dividends and future price appreciation.
T
The required return includes the risk free rate and a risk premium.
T
Value investors tend to prefer stocks with low price to sales and price to book ratios.
T
